Balance of Payment Essay

Custom StudentMr.
TeacherENG
1001-04
16 February 2017

Balance of Payment

Definition: BOT is the difference between the various export and import of visible goods of a country during a time. If the value of visible export exceed than the value of visible import than the balance of trade is said to be in favor. OR “The value of goods and services bought and sold in the world market.”

Cause of Adverse Balance of Payment

Since independence of Pakistan, balance of payment condition was not satisfactory. Accept few years, Pakistan is facing deficit in her balance of payment. The deficit is met by the loans. The deficit is increasing day by day.

• Import Of Machinery Developing countries are importing machines and technology to improve the industrial sector. It has made the balance of payment unfavorable because the value of capital goods is increasing day by day and we want to industrialize our economy.

• Export Of Raw Material Exports of Pakistan depend upon raw material and semi-manufactured goods. The price of raw material is very low in the world market. So our balance of payment remains unfavorable. For instance the product of cotton reduced in 1995 due to virus, so it also affected adversely our balance of payment, because we imported cotton instead of exporting.

• Political Unrest Many less developed countries like Pakistan are facing political unrest, which is the main cause of low production. Ultimately balance of payment remains unfavorable. In this situation investors fears to do the investment.

• Import Of Wheat Pakistan is facing the food shortage problem and spending a huge amount of foreign exchange on its import. In the past we imported many times like wheat and it has affected our balance of payment.

• Increase In The Sick Industrial Units Due to Nationalization a number of units are suffering a loss. These are not producing goods according to their full capacity. The low production has reduced the exports and increased the deficit of the budget.

• Domestic Problem Floods problem and Nationalization of industries reduced the production and exports of the country. Up till now majority of afghan refugees is living in Pakistan and most of them have got National identity cards in Pakistan.

Characteristic of Under-Developed Country

▪ High Capital Output Ratio Capital output ratio is the relationship in a given economy or in an industry for a given time period to the output of that economy or industry for similar time period. Capital output ratio in developing countries is very high because of uneconomic use of capital resources.

▪ Dependence On Agriculture Most of the less developed countries like Pakistan depend upon agriculture sector. The majority of population is engaged in agriculture. But unfortunately agriculture is hopelessly in a backward stage in the developing countries, the average land holding and per acre yield is low.

▪ Lack Of Capital Another common characteristic of developing countries is that there is a shortage of capital because of low level of incomes, low rate of saving, low rate of investment and unequal distribution of wealth.

▪ Vicious Circle Of Poverty A poor country is trapped in its own poverty. In the less developed countries production per capital income, saving and investment is low, so low investment leads to low production.

▪ Unequal Economic And Political Power For many less developed countries, a significant factor contributing to the persistence of low levels of living, rising unemployment, and growing income unequal distribution of economic and political power between the rich and the poor. Hoarding In the developing countries like Pakistan, people have the habit of hoarding precious metals, stones and currency. Gold and silver are used as ornaments instead of productive purpose.